BUDGETING DOESN’T WORK! That’s what you’ve heard from many, many places I’m sure. Now that I’ve got your attention, there are two reasons people think budgeting doesn’t work. If you think budgets work and just want some ideas on how to simplify things, skip this next section.

Why Some People Fail at Budgeting

1. Most people make budgeting too rigid. They’ll set up a budget for a month or even a year and then either something bad will happen – car repairs, medical emergency, or an appliance at home breaks. They’ll see their budget is at least a couple hundred over what they originally figured and throw down their spreadsheets and declare “BUDGETING DOESN’T WORK.” No, you just have to adjust your numbers. However much you went over in the car repair category and put it in another. Equally likely is something GOOD happening that throws your budget off. Someone invites you to a party at a nice restaurant or maybe your family all takes a vacation but you need to pay for your own airfare. Again, adjusting your budget as things happen isn’t failure, it’s just reacting to your life changing which can happen any time after you create your budget.

2. Many many people think budgets are complicated. There are some people that love to make things complicated down to the point of tracking how much they spend on toothpaste. Unless you’re buying for 50 people or a dentist’s office, this level of detail is unnecessary and just going to cause more work and frustration on your part.

My Plan to Simplify My 2019 Budget

To try to simplify my finances in 2019, I’ve skipped the traditional budget categories like Housing, Food, Clothes, Electric Bills, Cable Bills, Phone Bills, Life Insurance, Car Insurance, Identity Theft Pet Insurance, etc. Are you ready for this? I have cut everything down to FOUR main categories. This is all you really need, in my opinion. I am personally doing some sub-categories because I am weird and actually enjoy this kind of thing. Here they are:

1. Giving. This includes giving to charitable organizations including tithing to my local church, helping out families down on their luck during Christmas, or donating to your favorite charity.

2. Savings. This covers saving up a big beefy emergency fund to cover unexpected big nasty surprises (car accidents, major repairs to your house, job loss, etc) You can start out with a small emergency fund and build up to $1,000 and then after that to whatever makes you feel comfortable  that you can make it through any foreseeable emergency. A common recommendation is 6 months of expenses. Note that is not 6 months of salary, it is 6 months of expenses. If you lose your job, the assumption is you’d cut back everything you can to make this last as long as possible. Savings would also include saving for retirement, college funds, a down payment for a house, or if you’re still in debt I would consider paying down your debt as savings once you have a small emergency fund in place.

3. Needs. This is things you cannot live without. Food, shelter, utilities (water, gas, electric) but I would not include cable TV and would only include internet if you need it for work. Sadly watching cute cat videos is not a need. I would also include enough clothes to not look like a homeless bum at work.

4. Wants. This is of course things you can live without. This would be cable TV, Netflix subscriptions, eating out, electronic gadgets, video games, books, and internet if you don’t actually need it to function. This would also include any clothes beyond what you need to look presentable at work.

4.a & b Individual spending money. This one has been a huge benefit to my relationship to my wife. We both have different styles (I spend, she saves) and totally different interests (I’m a computer geek, she’s an artist) so before when we shared spending money we had some not-so-friendly discussions about what we should spend it on. At one point we both agreed on a set amount of spending money per month we both get. When it’s gone, it’s gone until next month when it gets refilled.

How Do I Do This?

You can do this with almost anything that you can break down expenses by category: personal finance applications, spreadsheets, or even just pencil and paper if you like. I am personally a big fan of the Banktivity application which is available on Mac and iOS. If you don’t have a system that can run Banktivity, I also highly recommend YNAB (You Need A Budget) which was my go-to budgeting app before I started using Banktivity just over a year ago.

My personal goal is to start saving 40% of my take home income so whenever I have income such as a paycheck or bonus, this is how I will be dividing it up:

• First tithe 10% of my pre-tax income.
• Set aside 40% of after-tax income for savings.
• The remaining amount will be split 2/3 for my Needs category and 1/3 for Wants, minus the previously mentioned amounts for his and hers spending money. This is almost exactly how much I spend on the different categories last year according to Banktivity. My Needs were almost twice as much as my Wants.

If I end up needing more money for my Needs, I can freely pull from my Wants. If I find myself wanting to pull money the other way, I’ll need to figure out how badly I want whatever it is I’m thinking of blowing the budget on and likely will just need to save up for it for a little bit.

Links

Banktivity is available from IGG Software

YNAB is available at YNAB.com

Disclaimers

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